Finance Committee on May 1st, 2018

[The Chair, Liberal, Wayne Easter]

Okay.

Ms. Lambropoulos.

[Emmanuella Lambropoulos, Liberal, Saint-Laurent, QC]

Thank you.

Thank you for being here to take questions. I don't usually sit on this committee, so forgive me if my questions are a little too general.

First of all, we know that putting a price on carbon is obviously going to cost Canadians. Still, it's something that I think a lot of Canadians are ready for. They realize that we need to act fast to help the environment; that's true for at least the residents in my riding of Saint-Laurent.

Can someone please tell me what the environmental risks of not implementing a price on carbon would be?

[John Moffet]

The goal of the Canadian government in pricing carbon, I would say, is threefold. First of all, the government believes that Canada should do it's part along with the rest of the world in trying to mitigate greenhouse gas emissions. Canada, on its own, cannot prevent climate change from occurring. On the other hand, if we fail to act, then it's the government's view that we have no basis to argue that other countries should act. Therefore, the government's position is that we need to act.

Then the question is how we should act. In the pan-Canadian framework, the government, along with first ministers, developed a strategy that puts carbon pricing as a foundational element, but not the exclusive element. The reason for its being a foundational element is that carbon pricing is the most economically efficient way to reduce emissions. This is because it provides maximum flexibility as to how emission reductions occur, as compared to a regulation, for example, that prescribes action or a financial subsidy, which targets certain activities. That's the basic reason for choosing carbon pricing.

On the other hand, the pan-Canadian framework also includes complementary regulatory measures and spending. Complementary regulatory measures are needed to address issues that can't be addressed by pricing. In some cases pricing simply won't work. In other cases pricing might not work fast enough. Therefore, we want to ensure, for example, that energy generation utilities no longer invest in coal-fired electricity generation facilities. Those are multi-million dollar facilities that have a lifetime of decades. In order to ensure that no new facilities are built, and then to ensure that they not continue to operate for another 20 or 30 years, or to avoid having them built and then mothballed and basically putting all that money in stranded capital, the government has elected to also regulate certain activities. Then, in addition, to address some well-known market failures or challenges in stimulating innovation in technology, the government has also chosen to provide financial support for clean technology.

That's the overall approach. Then, what's the risk of not including carbon pricing in that suite of activities? The simple answer is that if we take the first point, that we need to do our part, that we need to reach our Paris goal, the alternative would be to choose some other suite of measures that doesn't include carbon pricing to achieve that goal. Those measures by definition, in the absence of carbon pricing, would cost the Canadian economy more because they would be less efficient.

[Emmanuella Lambropoulos, Liberal, Saint-Laurent, QC]

Thank you very much.

Obviously we need to act fast, and this is the most efficient way of doing so. I don't see our having another choice. I know that some provinces have a plan, and others don't. Regardless of whether or not they have a plan, and whether it's going to be implemented by the federal government if they don't have a plan, how do we plan to work with the provinces to ensure that the revenues go to the right place and towards a greener economy?

[John Moffet]

We are working very closely with the provinces, but our efforts at the moment are focused primarily on helping those jurisdictions decide whether to implement their own pricing system, and if so, how to design the system in a way that makes the best sense for their jurisdiction, or whether it makes sense for them to agree to have the federal backstop applied. That has been a major focus of both of our departments over the past year.

The question of how provinces and territories would spend revenue that flows from their own systems or the federal system is a different question. There are two things I would point to.

First of all, in the lead-up to the pan-Canadian framework, the provinces, territories, and federal government put in place four working groups to explore the range of activities that should be undertaken to address climate change in Canada. One of those was a working group on carbon pricing, which Mr. Coulombe and I had the pleasure of working on. That working group issued a consensus report that included a number of principles, and those principles included some general directions around the way in which carbon pricing revenues ought to be deployed. Consideration should be given—albeit not exclusively— to disadvantaged households, for example, and to people in remote communities, etc., but also to supporting clean technologies. There is, then, a set of principles that jurisdictions have generally agreed to.

On the other hand, the federal government made it clear that it is not imposing any conditions on the way in which jurisdictions use revenue from their own systems. Ontario has a pricing system. The federal government has nothing to say, in terms of climate change, around the way that money is spent by the Ontario government.

Similarly, Minister McKenna has made it clear that if a jurisdiction asks the federal government to impose the backstop, that money will go directly back to the government, and there will be no conditions on the way that money is spent. Of course, we can have discussions about—

[The Chair, Liberal, Wayne Easter]

Let me just interrupt you. You mean it will go back to the provincial government.

[John Moffet]

I'm sorry. Yes, it goes to the government of that jurisdiction, provincial or territorial, with no strings attached, if you will.

As Mr. Poilievre pointed out, there's an added provision in the bill that, while it requires the government to return the money to the jurisdiction, authorizes the federal government to decide how to return the money. There is thus a possibility that in some cases in which the federal government imposes the backstop, the federal government may decide to return the money in some way other than directly to the government of that jurisdiction.

The policy decision about the way in which that money would be returned has not yet been articulated and, indeed, I believe that a prerequisite would be to designate by regulation—is that right?—the persons to whom that money is returned. That will be a matter, then, for regulations, which again would be a matter for public discussion before they're finalized.

[Emmanuella Lambropoulos, Liberal, Saint-Laurent, QC]

Thank you.

Last but not least, I'd like to know whether any measures are being taken to protect consumers and businesses. Obviously we have to put this price on carbon, as you said, but are there any protections being put in place?

[John Moffet]

At the moment, there are three things I would point to.

One—and I apologize for repeating myself—the provinces will have discretion. They will be able to spend the money, the direct revenue. The existing jurisdictions are already putting in place various measures that are, at least in some cases, intended directly to address the increased costs associated with carbon pricing, whether that takes the form of a rebate or financial support to invest in energy efficiency, which will have the long-term impact of reducing your exposure to carbon pricing because you're using less carbon. So there are various measures being undertaken.

Second, in the pan-Canadian framework there is a significant suite or collection of spending programs, some of which are expressly designed to enable households and small businesses to make low-cost investments in such things as energy efficiency. In the case of remote communities, there is significant funding being made available to enable those communities to transition from their 100% reliance on diesel for the purpose of electricity generation to renewable forms of energy for the bulk of their energy needs. Again, that will have the impact of reducing their exposure to carbon pricing.

Then, in the backstop system that's codified in the legislation before you today, the output-based pricing system is expressly designed to minimize any adverse competitiveness impacts. It does that, as I said earlier, by pricing on the margin instead of pricing on every tonne of emissions. A company will have a standard, and the standard will be in terms of emissions intensity. At the end of the year, it will report how much it produced and how much it emitted. Then it can calculate easily what its annual limit was. If it emitted 10 tonnes more than its limit, it will owe a price on 10 tonnes versus all of its emissions. If it emitted 10 tonnes less than its limit, we will owe it 10 credits that it can then sell to Mr. Mercille's company, because he's far less efficient than I am.

[Voices]

Oh, oh!

[John Moffet]

In that way, I face an incentive to reduce my emissions continuously. Even if I go below my limit, I face an incentive to continue to reduce them because I'm then generating something of value that I can sell. The idea there is that then we're reducing the total exposure to the price, which will minimize the impact on their competitiveness.

[Emmanuella Lambropoulos, Liberal, Saint-Laurent, QC]

Thank you.

[The Chair, Liberal, Wayne Easter]

Mr. Fergus, then back over to this side.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Thank you very much, Mr. Chair.

I would also like to thank the witnesses. The last time they were here, votes interrupted the discussions. I know it wasn't easy for them.

My question is for Mr. Mercille and Mr. Moffet, as well as all the witnesses. It concerns the memorandum that my opposition colleague quoted excerpts from. I think it is of interest to Canadians as well.

Has this memorandum been produced in conjunction with the bill we are looking at or with the document released yesterday by Environment and Climate Change Canada?

[The Chair, Liberal, Wayne Easter]

Mr. Coulombe

[Gervais Coulombe]

Thank you for your question, Mr. Fergus.

Based on our knowledge of our access to information services, this note was prepared during the transition period. You know, Canadians need to know that when there is an election, the federal public service prepares a series of analyses and studies on various current issues. Of course, given the content of the various electoral platforms, climate change and carbon pricing was one of those issues that was examined, studied by various departments in Ottawa, including the Department of Finance. As a result, these notes that are prepared for the public service and future decision-makers do not reflect the policy decisions and actions that are subsequently adopted by the government. It is only transitional material.

With respect to the review that has been requested and is under way, the Department of Finance will be working with the Office of the Information Commissioner, and we will be involved in every step of this review. I am not in a position to tell you more about it. It is a process that will follow its course.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Thank you very much. Your answer was very informative.

I think Canadians who are listening to us or reading the testimony of this committee will understand that these transition notes are prepared on the fly to prepare for the arrival of a new government that has no knowledge of policy initiatives or decisions. These policies are, frankly, the result of the good work of our public service.

This is a study that was really done quickly, just to make the transition. Am I wrong or does it reflect the situation?

[Gervais Coulombe]

I prefer not to give details about the study. I would like to stick to what I said earlier, that transition studies are prepared to brief senior officials. These senior officials are then responsible for briefing the new government in place.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Thank you for your answer.

I have a second question to better understand the commitment of the government and what has been developed in the bill. With the new carbon pricing system, it isn't the Canadian government that will cash the amounts. We made a commitment that is reflected in the bill, to put that back to the provincial and territorial authorities. Could you confirm that, please?

[Gervais Coulombe]

The direct revenues that will be generated by the carbon pricing instruments in this bill, if it were to apply—because there is always the possibility that all the provinces and territories will decide to introduce their own system, in good standing with the federal standard—will be handed over to the authorities who created them.

If you look at the budget documents that were released on February 27, you will notice that there is no revenue associated with this carbon pricing measure. I'll take the opportunity to say that it isn't included in the additional information on tax measures, since it isn't a tax. The main measure is to reduce emissions. It's along the lines of environmental regulatory measures.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

I know that Mr. Moffet has already answered this question, but I will come back to it to reinforce the message.

The bill seeks to ensure that the economic market will determine the best way to deal with carbon pricing. The philosophical basis of the bill is to allow, once again, private sector stakeholders to determine the best ways to reduce their environmental impacts. They will be incentivized to reduce their spending and increase their efficiency in the use of carbon.

[John Moffet]

I would broadly agree with your description of the philosophical kind of conceptual underpinning of carbon pricing, with one caveat, and that is that the carbon pricing applies beyond the private sector. You're right that it will apply to households. As householders, you and I will make decisions based on whether we will invest in energy efficiency, change our windows, choose what kind of car we will buy, or decide to take transit.

Similarly, the public sector is a large consumer of fuel and goods. The public sector will also face incentives provided by carbon pricing—hospitals, government buildings, etc. The idea is to apply the price as broadly as possible across the economy, but again, as you said, then the idea is to provide complete flexibility as to how to respond to that price signal.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Mr. Chair, very briefly I'd like to thank Mr. Moffet for bringing about that clarification.

You're absolutely right, and it's just a way of making sure that people have full information to make the right choices, as opposed to having it always externalized.

[The Chair, Liberal, Wayne Easter]

Thank you.

On my list I have Mr. Kmiec and Mr. Albas. If there is anybody else, put up your hand.

I do have one question before I go to Mr. Kmiec. In clause 192, which is the regulation section for the output-based pricing system, it states that they will be able to make regulations on user fees. Do those user fees fall under the Service Fees Act, or are they separate and apart from that?

Can anybody answer that? It's clause 192. It's the regulations under the output-based pricing system. There are a number of areas where you can make regulations, and one of them is everything from the system for tracking, compliance, and accounts in the system, to user fees, to retention of records, etc. Do you know what they fall under?

While I'm at it, I guess if anybody is here from Treasury Board, I note that in our various sections, in every budget implementation act, we end up dealing with a number of departments. User fees, now under the Service Fees Act, go up by inflation every year, which to me is a budgetary matter, even though it's not in the budget. I do believe that this committee should hear from somebody from the Treasury Board on user fees annually, whether those are in the budget implementation act or not, because fees are going up. If anybody is here from Finance on that topic, we'll be asking you to come forward on user fees at some point before we've finished with this budget implementation act.

Has anybody got an answer on user fees?

[Philippe Giguère, Manager, Legislative Policy, Department of the Environment]

Yes, Mr. Chair. Thank you.

With respect to clause 192 and the provision for user fees, there's no exemption to the Service Fees Act for this one. The intent here is mostly to use it.... For instance, it could be used with respect to the tracking system that we will set up under part 2 in the regulations. There's no specific exemption from the Service Fees Act, or I'm not sure if there's a new name now for this.